Nikkei just turned on a dime.TOKYO, Oct 23 (Reuters) - Japan's...

Nikkei just turned on a dime.

TOKYO, Oct 23 (Reuters) - Japan's Nikkei average aggressively pared losses to be down 2.7 percent on Thursday, helped by a report that the U.S. administration is weighing a roughly $40 billion proposal to help forestall foreclosures. The Wall Street Journal said Federal Deposit Insurance Corp Chairman Sheila Bair is expected to suggest in a Senate Banking Committee on Thursday that the government give banks incentives to turn troubled loans into more affordable mortgages, according to a person familiar with her testimony.

The report sparked buying of U.S. stock futures SPc1, which in turn set off short-covering of Nikkei futures JNIc1 and ultimately helped the cash market trim losses, market players said.

The Nikkei .N225 had fallen more than 7 percent earlier in the day to touch its lowest point in almost 5-½ years.

"Given the sharp falls in U.S. stocks recently, it wouldn't be surprising for a report like this to be used as reasons for a rebound there," said Masayoshi Okamoto, head of dealing at Jujiya Securities.

The Nikkei was down 212.73 points at 8,461.96. The broader Topix was down 2.5 percent at 866.62 after earlier falling more than 6 percent. (Reporting by Elaine Lies; Editing by Edwina Gibbs)